Of the two gold schemes put forward by the government, the Sovereign Gold Bond (SGB) scheme and Gold Monetization scheme, the SGB has the higher chance of succeeding and help India to reduce its gold import bill says in the report proposed by Nomura a Japanese brokerage firm. They emphasize the fact that the SGB scheme has a higher chance of succeeding as it is sovereign- backed and provides attractive investment options for many households who likes to hold gold as a part of their investment portfolio.
The annual investment demand for gold is estimated to be 300 million ton per annum and it accounts to be around 35 per cent of India’s gold import. The government also plans to issue Rs 15,000 crore worth SGBs during the second half of this fiscal year (October-March). The report added the fact that the additional issue of SGB’s will help the government to lower its market borrowings as SGB’s will be within the fiscal deficit and the gold import bill will amount to USD 2.2 billion.
Nomura also added that participation by households and temple trusts will be a challenge to the gold monetization scheme. They proposed that the temple trust has been away from other gold schemes .And since the house hold prefers their jewellery to be converted into gold bars and coins, those who hold large gold deposits should be aware of tax scrutiny.
Sovereign gold bonds are mainly aimed at those people who buys gold the as an investments option. These bonds will be issued in denominations of 5 grams, 10 grams, 50 grams and 100 grams and for a term of five years to seven years. These are issued with a rate of interest which is calculated on the value of the metal at the time of investment. Each person can purchase up to 500 grams of gold every year. These bonds will be only offered to Indian citizens and institution and the securities will be traded on exchanges to allow early exit for investors .But through the Gold Monetization Scheme which is approved by the Union Cabinet gold can be deposited in any form with banks for a period of 1-15 years and has a normal interest .But its redemption will be at the prevailing value and only at the end its tenure.